Unusual Option Activity - Feb 10, 2010

Here is some unusual option activity for today:


FXE - Single trader bought massive 135/136/137 butterfly spread in Feb, paying 15 cents debit.  Specifically, trader bought 10,000 contracts of wings (135 and 137 puts) and sold 20,000 contracts of the body (136 puts).  The trade will produce fat profit of over 600% if FXE closes at 136 on Feb expiration.  Stock closed today at 137.06 today.  This is a continuation bet that Euro still has more room to fall.  


AKS - Trader sold Jan 2011 $22.50 straddle (calls and puts) for a net credit of $9.00.  The bet pays off as long as the stock remains between $31.50 and $13.50 by Jan 2011 expiration.  Indeed a very wide range with assumption that IV will continue to fall.  I like the trade if you have conviction and patience.  


AUY - Trader rolled down 7000 contracts from April $13 calls to April $10 calls.  Still a bullish bet, but looking for higher delta.


ARM - Trader sold 1,250 contracts of May $10 straddle (calls and puts) for $2.50 credit.  Trade remains profitable as long as the stock remains between $7.50 and $12.50 window in the next 3 months.  Open interest was less than half the size of trade, clearly implying opening position.  Obviously, the trader believes the IV is too high and the stock is not going anywhere anytime soon.  


NVTL - 3500 contracts bought of March $7.50 calls on the offer paying $0.40 with IV rising 10%.  Stock hit 52-week low today, but speculators are abound for a turnaround.  Earnings are on Feb 25.  Shares are cheap on a cash basis at 1.7x and 7x cash flow.  There is also a 23.5% short float.  NVTL is a player in the 3G and 4G equipment.


GGB - Trader sold 5,000 June $15 calls against a block of 195,000 shares in a large buy-write.  Calls were sold for $0.80, effectively reducing the purchase price of shares to $12.80, with potential for around 20% upside.  Volume was double the open interest on both strikes.  Shares look to be finding support at its 200 day EMA here.  The Brazilian steelmaker trades 7.8X earnings and 8.5X cash flow.  Gerdau should see solid demand with infrastructure building for the Summer Olympics in Brazil.


GGB (separately) - Trader sold 3000 contracts of June $12.50 straddle (calls and puts) for a net credit of $3.00, effectively betting that the IV will decline and the stock will stay range bound between $9.50 and $15.50.  Volume was nearly 6x the open interest on both strikes.  


MDVN - The company is waiting for Phase III data in early March for cure of Alzheimer's disease.  A trader rolled 2,250 contracts from March $40 calls to June $55 calls.  Very bullish. 


CMCSA - Bullish risk reversal as shares dip to the 200 day MA and nearly fill the December gap.  The trader sold 5,600 July $12 puts and bought 5,600 July $18 calls, for a net debit of 1 penny.  Volume was more than double the open interest on both strikes.  At 11.3x earnings and cash flow, and a 2.5% dividend yield, CMCSA is ridiculously cheap.  Interestingly, the trade occurred on the day when Google made an announcement to make a push into broadband. 


PNC - Bullish risk reversal as traders sold 3,000 contracts of March $50 puts and bought 3,000 of March $52.50 calls for a net debit of 8 cents.  PNC is currently trading at 21% discount to book value and RBC has $65 price target.  Volume was higher than open interest on both strikes. 


PFCB - A single trader bought 2500 contracts of Feb $45 calls on the offer against open interest of only 787.  We have earnings from PNRA, BWLD and CMG all out on Thursday after the market close.  However PFCB earnings are expected next week some time (date not set yet).  This trader might be looking for further upside on the back of good earnings from other casual dining restaurants.  


SKF - Trader sold 15,400 contracts in a single lot of SKF $28 calls for $0.16 credit.  Open interest was only 1,076. That is bullish for financials.  Makes me believe option expiration next week will be calm and mostly non-volatile.  


That's it for today.  If I miss something, feel free to drop them in the comment box.